1) The cost of debt used in the international investment decision is the lesser of the
parent’s or the subsidiary’s cost of debt.
2) Saving surplus units include individuals and governments, but not corporations.
3) Bill saves $3,000 per year in his IRA starting at age 25 and continuing to age 65,
when he retires. The amount Bill has in his IRA at age 65 can be characterized as the
future value of an annuity.
4) If a common stockholder cannot personally attend the meeting of shareholders then
their votes are lost.
5) Toyota’s capital budgeting analysis for the Prius, a gas-electric hybrid, was faulty
because the car line has not made a profit to date.
6) Discretionary sources of financing are those sources that vary automatically with a
firm’s level of sales.
7) In an efficient market, two investors may agree on the amount and timing of a bond’s
expected cash flows and also on the bond’s risk level, as measured by its debt rating,
and still determine two different values for the bond.
8) The more fixed-charge securities (such as bonds and preferred stock) the firm
employs in its financial structure, the greater its financial leverage.
9) The sole proprietorship is for all practical purposes the absence of any formal legal
business structure.
10) A weakness in the capital budgeting process is the funds for an investment proposal
obtained by issuing bonds, and the respective interest payments, are not considered in
the capital budgeting process.
11) As production levels increase, fixed costs stay the same in total, but decrease on a
per unit basis.
12) The more difficult it is to estimate a firm’s cash flow needs, the greater the need to
carry higher precautionary balances.
13) When solving time value of money problems on a financial calculator, you must
select the “end mode” when you enter the final years cash flow.
14) Analysis of dividend policy begins with the basic assumption that shareholder
wealth maximization is the primary goal, and therefore dividends should be of primary
concern even if their payment results in capital rationing.